Wirecard - Ignore The Noise And Focus On Fundamentals?

Summary

• The company is facing allegations regarding balance sheet, invoicing and turnover.
• According to media reports, the final report of the external law firm could be published in the course of this week.
• Regardless of the allegations, it is important to know the company's fundamental situation in order to be able to react if the allegations prove to be false.
• According to an article in the Süddeutsche Zeitung dated March 17, 2019, the results of the investigation by the external law firm Rajah & Tann are expected in the course of this week.
• Furthermore, I will include my field reports from last year's shareholders' meeting held on June 21, 2018, in which I participated as a speaker in the Q&A session and also had the opportunity to have a personal conversation with CEO Dr. Markus Braun.

1. Introduction

Wirecard (OTCPK:WRCDF;OTCPK:WCAGY), until recently the high flyer on the German stock exchange, which last year had managed to rise to the highest German index, Dax 30, and in terms of market capitalization left the two major German banks Deutsche Bank and Commerzbank behind, is once again in the spotlight - but this time on a less pleasant matter.

At the end of January, the Financial Times, citing a whistleblower and based on a preliminary report by the law firm Rajah & Tann dated May 4, 2018, reported that there were internal allegations of inconsistencies against Wirecard in Singapore. The allegations concern possible falsification of invoices, contracts and balance sheets. The accusations even go so far as to claim that there were fictitious transactions between international subsidiaries in order to inflate the balance sheets (such as showing higher assets than is actually the case) and thus obtain a license from supervisory authorities for the Asian business (the growth potential in Asia has been one of my key reasons for investing in Wirecard).

Meanwhile, Wirecard denied all misconduct in a conference call held in early February, claiming that an internal investigation had led to evidence that the allegations were unfounded. Nevertheless, the Company had commissioned an external investigation from the law firm Rajah & Tann, which enjoys a very good reputation and is specialized in compliance cases. After an interview, the firm initially considered the employee to be credible and then, in mid-May 2018, was commissioned to investigate the matter in more detail. According to Wirecard, the investigations covered revenues of around seven million euros over a period of more than three years (if this information is true, it would represent 0.5% of revenues in fiscal year 2017; see transcript of conference call dated February 4, 2019).

Based on allegations made in several articles, the law firm Rajah & Tann published a statement on February 3, 2019 that "the inquiry is ongoing and to date we have made no conclusive findings of criminal misconduct on the part of any officer or employee of the Company."

At the same time, the Munich public prosecutor's office is investigating against unknown persons and against the journalist for possible market manipulation. It is supported in this by the Federal Financial Supervisory Authority (BaFin). In addition, the BaFin has prohibited new short-selling positions in Wirecard shares for a period of two months until April 18, 2019.

In addition to the investigation by Rajah & Tann, which was commissioned by the company in 2018 and the results of which are to be published shortly, the public prosecutor's office in Singapore is also investigating at the same time. There are reports that a large number of documents have been confiscated.

Finally, CEO Dr. Markus Braun repeatedly emphasized that the final report of the law firm Rajah & Tann will be available shortly. Additionally, on March 8, he tweeted the following: "I am convinced that in the very near future the market can solely focus on the strong operative performance and innovations of Wirecard."

Following the publication of several articles, Wirecard's share price plummeted by almost 50% from €170 to around €86. In the weeks that followed, the shareholders experienced a real roller coaster ride with some double-digit price fluctuations per day (see following chart).

At the end of Xetra trading on Friday March 15, 2018, the share price fell to €105 after new reports were published about the extension of the investigation to Wirecard's Indian subsidiary (it is worth mentioning that the allegations regarding the Indian subsidiary are not new and have already been subject of allegations in the past, which have been refuted in the course of external audits, according to Wirecard).

As background information, it is worth mentioning that Wirecard has repeatedly been the victim of accusations of accounting inconsistencies and money laundering in the past (e.g. in 2008, the share price had even divided by three as a result of accusations and the associated uncertainty). Most recently, in 2016, there were allegations of money laundering and illegal activities, which also turned out to be untrue. I say victim because no misconduct by Wirecard has been proven so far. On the contrary, some of the accusers were sentenced to imprisonment for stock price manipulation. On the other hand, Wirecard acts like an easy target on such allegations and management should be focused in avoiding them in future.

While I do not know the outcome of the current allegations, I think it is important to separate two things in this context, since every risk also presents an opportunity:

a) the fundamentals of the company and b) the opportunities and risks.

Furthermore, I will include my field reports from last year's shareholders' meeting held on June 21, 2018, in which I participated as a speaker in the Q&A session and also had the opportunity to have a personal conversation with CEO Dr. Markus Braun.

There were two reasons why I decided to attend the shareholders' meeting. First, Wirecard is a very dynamically growing company and Dr. Markus Braun is seen by employees and the public as a visionary, dynamic and ambitious CEO, so I wanted to get a personal picture of the whole thing and be inspired. In addition, Dr. Braun's interviews and public appearances, in which he appeared very convincingly and decisively, convinced me to increase my Wirecard shareholding.

Secondly, I had a number of questions for the management team in order to better classify and assess Wirecard as an investment.

Let's ignore the accusations in the first part and take a look at the business model, the fundamental situation and the valuation of the company.

In the second part of the article, we then discuss the opportunities, risks, strengths and weaknesses with a special focus on the current allegations.

2. Business Model

Wirecard, founded in 1999, is an innovative payment service provider based in Aschheim near Munich, which essentially offers digital payment and risk management solutions. Wirecard processes all common online and in-store forms of payment (e.g. credit cards, debit cards, Paypal, Alipay, WeChat Pay) and cooperates with a large number of card providers (e.g. Visa (V), Mastercard (MA), Union Pay, American Express (AXP)). In addition, the company offers the integration of payment options into well-known online shop systems (e.g. Magento, WooCommerce, OpenCart).

As of the 3rd quarter of 2018, the company had around 40 thousand mid to large sized customers and around 225 thousand small-sized customers.

In the fiscal year 2017, the company handled a transaction volume of €91 billion, generated revenues of €1.49 billion and employed 4,449 people.

Wirecard logo. Source: Wirecard

The company is led by CEO Dr. Markus Braun since 2002, who is seen by employees and the public as a visionary, dynamic and ambitious CEO (the CEO has been another major reason for my investment in Wirecard). At the same time, he is the largest shareholder of the company with a stake of 7% and increases his stake at regular intervals (most recently in December 2018 at a share price of around €130).

According to Wirecard, the company is currently the only player in the field of digital payment solutions represented on all continents which offers its services via one fully digital platform on a global scale (Wirecard's so called "Financial Commerce Plattform"). In doing so, not only transaction-based services but also real-time analysis and risk management tools are offered. Countries in which Wirecard is not yet represented shall be developed organically. Furthermore, the subsidiary Wirecard Bank AG holds a German banking license.

The following figure illustrates Wirecard's so called "Financial Commerce Plattform" on a global scale.

Wirecards Financial Commerce Plattform. Source: Wirecard

Wirecard's business activities are divided into three segments: payment processing & risk management, acquiring & issuing, call center & communication services.

The segment payment processing & risk management generates revenues, among others, from business relationships with providers of goods or services on the Internet who outsource their electronic payment processes to Wirecard and related services (e. g. machine-learning algorithms in the area of payment default as well as data-based methods for increasing conversion rates on the merchant's side).

The segment acquiring & issuing includes generates revenues, among others, from digital payment acceptance on the merchant's side (mobile, online, in-store) and issuance of debit cards, credit cards and incentive cards to business customers, merchants and consumers. The area of acquiring & issuing is the second largest division with a revenue contribution of €485 million and corresponds to a revenue share of around 30%. This area generates around 20% of the company's EBITDA.

The area of call center & communications generates revenues from operating telephone-based advisory services and by providing conventional call centre services. This segment makes an insignificant contribution to the results and can be ignored in this context.

The area of payment processing & risk management represents the largest business area with a revenue contribution of €1.07 billion in the financial year 2017 and corresponds to a revenue share of around 70%. This area represents 80% of the company's EBITDA.

The following chart shows the revenue and EBITDA breakdown of the individual segments in the 2017 financial year.

Revenue and EBITDA breakdown of Wirecard's individual segments in the 2017 financial year. Source: Wirecard

In terms of regions, 57% of the transaction volume in 2017 came from Europe (thereof 37% from Germany and 63% from the rest of Europe). The Asia Pacific region accounted for approximately 30% of the transaction volume, which grew by over 90% year-on-year. I assume that the partnerships with Alibaba (BABA) (Alipay) and Tencent (OTCPK:TCEHY) (TCTZF) (WeChat Pay), among others, had significantly contributed to this. The company also recently announced a cooperation with Ctrip (CTRP), China's largest travel service provider. Additionally, growth in India and other Asian regions is being pushed.

The following chart illustrates the global breakdown of the transaction volume by region in the 2017 financial year:

Breakdown of Wirecard's global transaction volume by region. Source: Wirecard

Concerning the breakdown of the transaction volume into certain sectors, it can be stated that the Consumer Goods segment with a share of almost 50% represents the largest sector (includes B2C and B2B physical products), followed by Digital Goods with a share of 32% (includes digital goods such as internet portals, download and streaming services, telecommunications, SaaS and app providers) and Travel & Mobility with a share of about 19% (includes airlines, hotel chains, travel portals, tour operators, ferries, car rental and transportation companies).

The following chart illustrates the global breakdown of the transaction volume by sector in the 2017 financial year:

Breakdown of Wirecard's global transaction volume by sector. Source: Wirecard

Before we close this chapter, there is one more important point about Wirecard's business model. Critics and (potential) investors often ask why Wirecard's visibility to the public is so low and why the logo, for example, is rarely or barely displayed on card terminals. The reason for this is that Wirecard's business model is primarily focused on back-end solutions while front-end solutions are primarily offered on a white-label basis, as illustrated in the following figure:

Nevertheless, it is noticeable that Wirecard is striving to expand its product portfolio and, for example, has recently started offering a mobile card reader (in analogy to Square's mobile card reader, although not so stylish; see here a video presentation of Wirecard's mobile card reader).

In 2015, Wirecard also launched with "boon" a mobile payment app for the European market, which is similar to Squares Cash App, but has a much lower market penetration and marketing efforts.

A further parallel to Square (SQ), which was recently published in a press release, is the release of mobile payment SDK libraries which enables merchants to integrate in-app payment options more easily as well as facilitate PCI compliance (SDK stands for software development kits).

3. Growth

Wirecard again posted strong growth in the past fiscal year. The transaction volume rose from €61.7 billion to €91 billion, which corresponds to an increase of 47%. Revenues rose by 45% from just under €1 billion to around €1.5 billion. Earnings per share rose by 47% to €2.10 (previous year: €1.43). The following chart summarizes the results of the past fiscal year which illustrates high double-digit growth in key figures.

Wirecard key figures in FY2017. Source: Wirecard

It is worth noting that this strong growth was also driven by acquisitions. As the following chart shows, organic growth was at about 25%.

Organic versus M&A related growth year-on-year in FY2017. Source: Wirecard

The following chart illustrates Wirecard's annual revenue growth over the past five years according to which the average revenue growth was around 30%. Revenue has more than tripled in the last five years and doubled in the last three years, representing accelerating growth which was also driven by acquisitions (you can see an overview of Wirecard's recent M&A activities on page 22 of the linked presentation).

Wirecard's annual revenue growth. Source: Morningstar

With regard to the previous quarter, the transaction volume in the first nine months of 2018 was €90.2 billion (9M 2017: €62.5 billion), which corresponds to growth of around 44%. The transaction volume generated within Europe grew by approximately 21% to €45.2 billion (9M 2017: €37.3 billion), while the volume generated outside Europe grew by approximately 78% to €45.0 billion (9M 2017: €25.3 billion). Group revenue increased by 41%.

EBITDA increased by 38% and net result increased by 49%. Furthermore, the EBITDA guidance for FY2018 was increased to €550 to 570 million (from previously €530 to 560 million)

Since Wirecard is showing profitable growth, it makes sense to look at the operating margin and make a peer group comparison in order to measure the operational performance. In the last three years the operating margin was stable and tended to be around 22%. With regard to the peer group comparison, Wirecard's operating margin was 21.39% in fiscal year 2017 financial year and is leading the peer group comparison consisting of Square (SQ) (-1.11%), First Data (FDC) (20.88%), Worldpay (WP) (12.95%), Ingenico (OTC:INGIF) (15.94%), Paypal (PYPL) (16.20%), Adyen (OTCPK:ADYYF) (9.23%).

In terms of gross margin, the trend is also stable. Wirecard performs on average with a gross margin of 50.1% in fiscal year 2017 compared to the peer group consisting Square (39.53%), First Data (59.74%), Worldpay (52.73%), Ingenico (41.24%), Paypal (46.04%), Adyen (21.56%), (see following figure).

Wirecards margin development in recent years. Source: Morningstar

A frequently mentioned point of criticism by short sellers in connection with Wirecard is that the margins are far too high in peer group comparison so that in the past the company was accused of balance sheet manipulation. As shown in the peer group comparison, Wirecard's margins are not unrealistic or exaggeratedly high, so this point of criticism seems to be obsolete. On the contrary, Wirecard's higher operating margin is a competitive advantage over competitors.

4. Fundamentals

In addition to profitable growth, Wirecard also has a solid balance sheet. As at September 30, 2018, Wirecard had a net cash position in the amount of €452 million.

Wirecard's net cash position as at 30 September 2018. Source: Wirecard

Given that free cash flow is growing at a double-digit rate, the company has sufficient funds available to invest in organic growth and, if necessary, acquisitions. Nevertheless, the management team emphasized at the shareholders' meeting that the focus will be on organic growth.

Free cash flow grew by 35% last year. In the first nine months of 2018, FCF grew even more by 42%. Taking the scalable business into account, a high double-digit free cash flow growth in line with revenue growth could also be expected in the future.

The following figure illustrates free cash flow growth in the first nine months of 2018.

Wirecard's free cash flow. Source: Wirecard

As a special treat for investors, Wirecard has also been paying a dividend since fiscal 2012, which is not standard practice for growth companies. In addition to the special feature that Wirecard, as a growth company, pays a dividend, the dividend has been increased annually since then and has almost doubled since its beginning. Nevertheless, the dividend yield is quite low at 0.26%.

Wirecard's dividend development. Source: Morningstar

5. Valuation

In terms of valuation, it makes sense to draw a comparison with other payment processors. Nevertheless, I think it is important to take a look at the market values and revenues of the individual companies first, so that the proportions are more comprehensible. As shown in the chart, Wirecard is still a relatively small player despite impressive growth.

The following chart shows peer group revenues for the period from January 1, 2017 to December 31, 2017 on a US dollar basis for better comparability. And although Wirecard generates far more revenues than Adyen, the current market value of Wirecard is almost 50% lower (a little side note: did you know that Paypal generates more revenue than Mastercard?).

Since the Wirecard stock does not have its main listing in the USA, it is challenging to make a comparison with freely accessible evaluation tools. Nevertheless, a comparison of the price sales ratio based on YCharts suggests that Wirecard is favourably valued compared to the peer group. Wirecard has a price sales ratio of 6.6 with profitable growth and revenue growth of 44% in the first nine months of 2018. For comparison: Paypal had a GAAP revenue growth of 13% in the latest quarter of FY 2018 and has a current P/S ratio 7.78. Square is not profitable on GAAP basis and has a P/S ratio of 9.57 with a revenue growth of 64.2% in the latest quarter. Adyen has a nearly three times as high valuation with a P/S ratio of 17.12 and a revenue growth of 67.67% in the latest quarter (see following figure).

With regard to the P/E ratio, it can be said that the forward P/E ratio is 26.81 according to Morningstar. Taking into account the historical P/E based on the following graph, it can be argued that Wirecard's current valuation with a forward PE of less than 30 appears to be relatively favourable.

As already mentioned, the EBITDA guidance for FY2018 was increased to €550 to 570 million (previous year: €412 million). This would correspond to Ebitda growth of 33.49% to 38.35%. According to Morningstar, the EV/Ebitda ratio is currently 22.76 (as of March 18, 2018). With an Ebitda growth of 33.49% to 38.35%, an Ebitda growth to EV/Ebitda ratio of 1.47 to 1.68 seems more than fairly valued. The following figure illustrates Wirecard's EV/Ebitda development over the past five years:

6. Strengths & Opportunities

In this area, I would like to discuss Wirecard's general qualitative strengths and opportunities. On the other hand, I would like to present the statements made by the Wirecard management team at last year's Annual General Meeting on future business development.

First, as already mentioned, Wirecard would be currently the only player in the field of digital payment solutions represented on all continents which offers its services via one fully digital platform on a global scale (Wirecard's so called "Financial Commerce Plattform"). The special feature of this platform would be that all common forms of payment can be processed, regardless of whether they are online, in-store or mobile (debit card, credit card, Paypal, Alipay, WeChat Pay etc.). In addition, payment solutions can be connected to all common online shop systems (WooCommerce, Magento, OpenCart etc.). If this platform is actually fully digital, it enables immense scalability and an important competitive advantage over competitors.

Wirecards Financial Commerce Platform. Source: Wirecard

Second, management stated that countries in which Wirecard is not yet represented shall be developed organically. The advantage for investors is that, due to organic growth, investment costs should be kept low compared to acquisitions, so that profits should rise at a disproportionate rate. After all, profits (along with liquidity and fantasy on the stock market) are the main drivers of rising stock prices (even if it doesn't always look like it in the short term). The following graph shows Wirecard's ecosystem once again. The following figure illustrates Wirecard's current global footprint:

Wirecard's global footprint. Source: Wirecard

Third, according to statements made by the management at last year's General Meeting, the focus in the future will continue to be on scaling business, which means increasing transaction volume, revenues and margins. The management team sees the area of digital payment as still in its infancy and expects it to grow strongly over the next 10-15 years. While the area of digital payment is expected to grow by 16-17%, Wirecard's organic revenue growth is expected to be at least 25%.

CEO Dr. Markus Braun metaphorically describes Wirecard (as well as Amazon (AMZN)) as a big fish in a still very small pond. He claims that real-time transactions in particular are supposed to be a growth driver. In Europe, 40-45% of transactions are not yet processed in real time. In Eastern Europe the share is even higher. Worldwide, 80-85% of all transactions are still carried out with cash. Only 15-20% of all transactions are processed electronically and only 8-10% of all electronic transactions are fully digitalized. The management team assumes that in the next 10-15 years all payment processes will be replaced by fully digital processes, so that there is enormous growth potential here.

In this context, Dr. Braun also went into more detail about the 2020 vision, according to which Wirecard is to handle a transaction volume of €210 billion by 2020 and generate revenues of €2.8 billion (as of fiscal 2017, the transaction volume was just under €100 billion and revenues around €1.5 billion). Nevertheless, he pointed out that these figures were also conservatively chosen and management expects accelerating organic growth in future.

In the meantime, Wirecard has published a Vision 2025 (see figure below):

Wirecard's growth prospects - Vision 2020 vs 2025. Source: Wirecard

Another sign of accelerating growth in the future could be the current job vacancies, especially in the areas of IT and administration (you can find an overview of current job vacancies here).

Forth, the management sees it as a success factor not to have expanded immediately into the USA, but initially into Asia. Mr. Braun sees India as by far the most exciting market among the BRIC countries (Brazil, Russia, India, China) and considers India in many areas such as China 15 years ago. India is expected to be the strongest growth market among the BRIC countries over the next ten years. As already mentioned, Wirecard's strong positioning in Asia and Eastern Europe was one of my main reasons for investing in Wirecard. I also see India as a very promising market.

Fifth, while the online and mobile payment sectors are regarded as the main growth drivers, the retail sector should not disappear in the future. Rather, it would be a matter of optimally linking these sales channels in order to provide consumers with a unique shopping experience. Consequently, Wirecard could benefit from this due to its omni-channel payment solutions. This statement also aligns with the fact that Amazon, for example, has taken over the organic supermarket chain Whole Foods Market, or that Alibaba operates the supermarket chain Hema Stores in China which also offer omni-channel payment solutions (e.g. order online and pick up at the store or vice versa).

As consumers, we should be prepared to receive several services related to the shopping experience in the future, such as online ordering and in-store pickup or in-store ordering and home delivery, as well as real-time discounts and product suggestions while we are in the shop. Occasionally, a number of shops also offer home delivery (such as WMF, a famous manufacturer and retailer of household goods). It will also be possible in future to take out real-time loans and insurance during the shopping process (see for example the following video provided by Wirecard).

Another trend is the substitution of the point-of-sale (short: POS) towards ePOS, which means that consumers can use their mobile device (iPad, iPhone, etc.) to pay directly at the point of sale via fingerprint or face recognition and leave the store without having to stand in the queue forever. A pilot project in this context, for example, is Amazon with Amazon Go. Alibaba is also working on an analog concept with its Hema Stores.

In this context, German retailers and Wirecard are benefiting in particular from Chinese tourists who predominantly use mobile payment methods such as Alipay and WeChat Pay and spend an average of EUR 3,000 per capita on their shopping tours in Germany. There are also reports that the increasing acceptance of mobile payment solutions by retailers has boosted sales.

Furthermore, the CEO mentioned that Wirecard is currently in partnership talks to gain access to the Chinese domestic market. In view of the fact that even beggars can be paid for alms in China via QR codes using Alipay and WeChat Pay, and that around 1.4 billion people live there, one can certainly imagine the immense potential that lies dormant in the Chinese market. Nevertheless, I consider this point to be very optimistic, as the Chinese players Alibaba and Tencent are very strong in the domestic market. Rather, I assume that Wirecard could enter into further partnerships for payment solutions outside China (such as with Ctrip).

Sixth, "boon" would be Wirecard's future product as a mobile payment and banking app. In the future, it should be possible to grant micro credits, close mobile insurance, manage accounts, send and receive money between the users of Wirecard's banking app with the help of a fully digital real-time solution (see "boon" homepage for further information).

Seventh, a total of over €240 million in loans were issued, generating interest income of €16 million. The management team plans to expand this area as a supplement to the core business. The growth potential is to be achieved primarily through partnerships with banks. Interest income will be divided between Wirecard and the banks. What is striking at this point is that Wirecard and Fintechs in general are increasingly moving into the business area of conventional banks and taking market shares from them.

Eighth, on June 14, 2018, a press release was issued that Wirecard now also offers services based on blockchain technology, which could generate additional revenues. According to management, there are highly inefficient, analogous and decentralized processes between producers and manufacturers (e.g. steel, cocoa), especially in the raw materials sector, where the use of digital processes (e.g. digital payments and smart contracts) can create added value. All in while the blockchain area would be examined very closely, there would be very little added value and business models in this area at present.

7. Weaknesses & Threats

First, when the management team was asked about potential business risks at the shareholders' meeting, it first referred to the annual report, which lists all the risks. At the same time, the CEO said that high growth is not possible without risks, such as the use of technology. As further significant risks, compliance challenges were mentioned. These include, for example, money laundering.

Second, in my opinion, the biggest risks are the current allegations of falsification of revenues, contracts and balance sheets against employees in the Asian business. They hover like a sword of Damocles over the company and are likely to weigh on the share price until the case is resolved. Should the accusations prove to be true, Wirecard could lose the trust of the market as a result. On the other hand, there are newspaper reports that in the worst case the license for parts of the Asian business could be revoked (as already mentioned, the growth potential in Asia was one of the key factors for my investment in Wirecard). In addition, a potential truth to the allegations could lead to criminal investigations and put significant pressure on the share price.

Third, as already mentioned, Wirecard is very broadly positioned in the field of digital payment processes and has a diversified product portfolio. What looks like a competitive advantage also means that market participants regularly question both the business model and the sources of income. Although high growth is not uncommon in the industry, the company is regularly accused of a lack of transparency. In this respect, it is not unlikely that such "short attacks" could continue in the future if the company does not find a solution.

Fourth, there is strong competition between a large number of players. I had already mentioned some of these companies in the "Valuation" section. Nevertheless, Wirecard's services are not exclusively substitutive, but often complementary. For example, Wirecard earns money when the checkout terminal in an online shop is set up by Wirecard, even though the payment process runs via Paypal. In addition, I already mentioned in the "Business Model" section that Wirecard's customer portfolio is very diversified. As of the 3rd quarter of 2018, the company had around 40 thousand mid to large sized customers and around 225 thousand small-sized customers.

Fifthly, another disadvantage for a technology company like Wirecard, in my view, is the fact that it is not domiciled in the USA. Considering the valuations in the technology sector, I am pretty sure that the valuation and investor demand would be much higher if Wirecard were domiciled in the USA.

8. Conclusion

On the one hand, considering the high growth rate, solid balance sheet, competitive advantage based on global footprint and broad technological base, Wirecard seems to be one of the best (European) growth stocks at the moment. I would say that wirecard is a conviction buy at the current level. In addition, the share should have significant upside potential if allegations can be disproved

On the other hand, there would be significant downside potential and risk of criminal investigations if the allegations were true. The exact magnitude of the potential consequences is currently difficult to assess. According to Wirecard the revenue in question is around €7 million, which would correspond 0.5% of 2017 revenue. The risk, however, is that even more such cases could come to light.

While I do not believe that Wirecard has committed any intentional misconduct, it is difficult to rule out whether individual employees have committed any misconduct. Nevertheless, history tells us that in the past all accusations have proven to be unfounded. Furthermore, CEO Braun sounds very optimistic in his tweet, which could suggest that at least no serious findings should arise.

As already mentioned, there were two main factors for my investment in Wirecard. First, the growth potential in Asia and (Eastern Europe). Second, the skills and vision of CEO Markus Braun. If the allegations prove to be true and there is a real threat of a license withdrawal in parts of the Asian business, I would be forced to reconsider my investment thesis.

The figures for fiscal year 2018 are set to be published on April 4, 2019. In anticipation of good quarterly figures, the share price could already rise in advance. If not and the expectations of the market are exceeded, there is even more upside potential.

Finally, according to an article in the Süddeutsche Zeitung of 17 March 2019, the results of the investigation by the law firm Rajah & Tann are expected within the next seven days.

Long story short: if the allegations are untrue, Wirecard is a conviction buy at the current valuation in my humble opinion.

Hope you enjoyed reading my article. Wish you much success with your investments!

Disclosure: I am/we are long WRCDF, WCAGY, ADYEN, ADYYF, SQ, AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.